Macro economic objectives - Inflation

Question 1

how is inflation measured

Answer 1

using the consumer price index (CPI)

Question 2

what is inflation

Answer 2

sustained rise in general price level over time

Question 3

what are the two types of inflation

Answer 3

cost push
demand pull

Question 4

what is cost push inflation

Answer 4

producers cost increase causing supply to shift to the lift which causes a movement up the demand curve meaning price level is greater

Question 5

what is demand pull inflation

Answer 5

increase in demand so it shifts out to the right causing a movement up the supply curve which increases price level and wage level

Question 6

what is on the x and y axis of an inflation graph

Answer 6

y = price level (pl for price level)
x = real gdp (y for income)

Question 7

what can cause cost push inflation

Answer 7

increase in cost of production

Question 8

what can cause demand pull inflation

Answer 8

increase in demand from consumers abroad
economic growth leading to higher income
increase supply of money

Question 9

how do we calculate inflation

Answer 9

a basket of goods is used (C.P.I) on what average households are spending. the goods are weighted according to proportion of income spent on the goods.
inflation is calculated from change in the CPI from year to year

Question 10

what are the two government policies on the demand side- to control inflation

Answer 10

fiscal - taxes raised to discourage spending
and monetary - interest rates increased to discourage borrowing and spending

Question 11

What are examples of supply side policies to control inflation

Answer 11

privatisation and deregulation of rules increases competitiveness which can reeduce costs
reduce power of trade unions